Category Archives: February

Indian Freight forwarding Company books air freight contract for Indian recipient for transportation of goods from Singapore to China.

Issue:

i) From which place supply is made?

ii) Whether this transaction is taxable in India?

Reply

The supply which is being made here is a supply of booking service by the Indian Freight Forwarding Company. The Freight Forwarding Company is not actually supplying goods or actually supply transportation services. They are simply doing booking and arranging for the transportation without actually carrying out the transportation or without actually selling the goods.

This transaction is undoubtedly taxable in India. There is nothing extra-territorial in the services being provided. The booking is done by a service provider located in India and the service is being provided to an Indian entity. The actual performance of the service, that is the booking, is also in India. Thus, situs of the service is in India. India therefore has jurisdiction to tax this service.

For services, the question of inter-state or intra-state supply is determined in accordance with Section 7(3) and Section 8(2) of Integrated GST Act:

“7(3) Subject to the provisions of section 12, supply of services, where the location of the supplier and the place of supply are in ––

(a) two different States;

(b) two different Union territories; or

(c) a State and a Union territory,

shall be treated as a supply of services in the course of inter-State trade or commerce.”

“8(2) Subject to the provisions of section 12, supply of services where the location of the supplier and the place of supply of services are in the same State or same Union territory shall be treated as intra-State supply.”

The “location of supplier of service” for the purposes of determining whether supply is inter-state or intra-state is defined in Section 2(15) of the Integrated GST Act:

“2(15) “location of the supplier of services” means,––

(a) where a supply is made from a place of business for which the registration has been obtained, the location of such place of business;

(b) where a supply is made from a place other than the place of business for which registration has been obtained (a fixed establishment elsewhere), the location of such fixed establishment;

(c) where a supply is made from more than one establishment, whether the place of business or fixed establishment, the location of the establishment most directly concerned with the provision of the supply; and

(d) in absence of such places, the location of the usual place of residence of the supplier.”

Absent contrary indication in the query, we are assuming that the services are being provided by the Indian Freight Forwarding Company from their Indian registered place of business or Indian fixed establishment. Therefore, the “location of supplier of service” will be in India. There are no details given as to the State from which the Indian Freight Forwarding Company is providing services.

The place of supply must be determined either with reference to Section 12 or Section 13 of the Integrated GST Act. Sections 12 and 13 are mutually exclusive, in asmuch Section 12 deals with domestic supplies and Section 13 deals with international supplies. Sections 12(1) and 13(1) read as follows:

“12(1): The provisions of this section shall apply to determine the place of supply of services where the location of supplier of services and the location of the recipient of services is in India.

13(1): The provisions of this section shall apply to determine the place of supply of services where the location of the supplier of services or the location of the recipient of services is outside India.”

We have already concluded that the location of supplier of service is in India. Now, to determine whether Section 12 applies or Section 13 applies, one must first determine whether the location of recipient of service is also in India or outside India. “Location of recipient of service” is defined in Section 2(14):

“2(14): “location of the recipient of services” means,––

(a) where a supply is received at a place of business for which the registration has been obtained, the location of such place of business;

(b) where a supply is received at a place other than the place of business for which registration has been obtained (a fixed establishment elsewhere), the location of such fixed establishment;

(c) where a supply is received at more than one establishment, whether the place of business or fixed establishment, the location of the establishment most directly concerned with the receipt of the supply; and

(d) in absence of such places, the location of the usual place of residence of the recipient.”

No details are provided as to where the services are received, that is, in which State the services are received. From the query we are presuming that the services are also received in India. Therefore the “location of recipient of services” is within India itself. As per Section 12(1), when the location of supplier of services and the location of recipient of services are both within India, the place of supply is to be determined in accordance with Section 12.

Section 12 of the Integrated GST Act does not have any specific provision dealing with “intermediary services” or arranging the supply of transportation services unlike a specific provision in Section 13(8)(b) read with Section 2(13). However, since the supply here is covered by Section 12 and not Section 13, the two being mutually exclusive, one cannot look at provisions of Section 13 or draw analogies therefrom.

Section 12(8) deals with:

“2(8) The place of supply of services by way of transportation of goods, including by mail or courier to,––

(a) a registered person, shall be the location of such person;

(b) a person other than a registered person, shall be the location at which such goods are handed over for their transportation.”

It is apparent that Section 12(8) cannot cover the booking service provided herein. Services “by way of” transportation means actual service of transportation and not just booking or arranging of transportation.

There is no specific provision at all in Section 12 dealing with the services provided herein. Therefore Section 12(2), which is like a residuary provision, will apply:

“12(2): The place of supply of services, except the services specified in sub-sections (3) to (14),––

(a) made to a registered person shall be the location of such person;

(b) made to any person other than a registered person shall be,––

(i) the location of the recipient where the address on record exists; and

(ii) the location of the supplier of services in other cases.”

The place of supply will therefore have to be determined as per Section 12(2). There are not sufficient details in the query, but the place of supply will be in India because the query says the recipient is in India.

It is not possible to determine whether the service is in inter-state or intra-state since there is no sufficient information on the State from which the services is being supplied or the State in which the service is being received. Therefore, the provisions of Section 7(3) or 8(2) for determination of inter-state or intra-state supply cannot be applied at this stage. Suffice to say that since the service is being provided from India and the place of supply is in India, the service will be taxable in India in some State as a local supply or taxable as an inter-state supply.

Composition dealer registered under GST in Uttar Pradesh purchases goods from another composition dealer what will be tax liability on the sales. Whether he will have to pay any tax on purchases incurred from another composition dealer?

Reply: There is no restriction for purchases from composition dealer. The composition scheme is given in section 10 of the CGST Act. The said section is reproduced below:

“10. (1) Notwithstanding anything to the contrary contained in this Act but subject to the provisions of sub-sections (3) and (4) of section 9, a registered person, whose aggregate turnover in the preceding financial year did not exceed fifty lakh rupees, may opt to pay, in lieu of the tax payable by him, an amount calculated at such rate as may be prescribed, but not exceeding, ––

(a) one per cent of the turnover in State or turnover in Union territory in case of a manufacturer,

(b) two and a half per cent of the turnover in State or turnover in Union territory in case of persons engaged in making supplies referred to in clause (b) of paragraph 6 of Schedule II, and

(c) half per cent of the turnover in State or turnover in Union Territory in case of other suppliers, subject to such conditions and restrictions as may be prescribed:

Provided that the Government may, by notification, increase the said limit of fifty lakh rupees to such higher amount, not exceeding one crore rupees, as may be recommended by the Council.

(2) The registered person shall be eligible to opt under sub-section (1), if:—

(a) he is not engaged in the supply of services other than supplies referred to in clause (b) of paragraph 6 of Schedule II;

(b) he is not engaged in making any supply of goods which are not leviable to tax under this Act;

(c) he is not engaged in making any inter-State outward supplies of goods;

(d) he is not engaged in making any supply of goods through an electronic commerce operator who is required to collect tax at source under section 52; and

(e) he is not a manufacturer of such goods as may be notified by the Government on the recommendations of the Council

Provided that where more than one registered persons are having the same Permanent Account Number (issued under the Income-tax Act, 1961), the registered person shall not be eligible to opt for the scheme under sub-section (1) unless all such registered persons opt to pay tax under that sub-section.

(3) The option availed of by a registered person under sub-section (1) shall lapse with effect from the day on which his aggregate turnover during a financial year exceeds the limit specified under sub-section (1).

(4) A taxable person to whom the provisions of sub-section (1) apply shall not collect any tax from the recipient on supplies made by him nor shall he be entitled to any credit of input tax.

(5) If the proper officer has reasons to believe that a taxable person has paid tax under sub-section (1) despite not being eligible, such person shall, in addition to any tax that may be payable by him under any other provisions of this Act, be liable to a penalty and the provisions of section 73 or section 74 shall, mutatis mutandis, apply for determination of tax and penalty.”

(The amendments in this section about limits etc., are not covered as this section is reproduced for the purpose of reference for above query).

It can be seen that there is no restriction on inward supply. Therefore, purchasing from composition dealer is also valid and there is no adverse effect on the composition scheme.

Sale in course of import from bonded warehouse

Query

Under CST Act, as per second limb of section 5(2), the sales made by transfer of documents of title to goods before the goods cross the customs frontiers of India are exempt from levy of tax. Whether sales effected from the bonded warehouse are eligible to exemption under above provision?

Reply: It is true that the sales effected by transfer of documents of title to goods before the goods cross the customs frontiers of India are exempt. However, there is litigation about scope of crossing the customs frontiers.

In case of State Trading Corporation of India Ltd. (129 STC 294), the Madras High Court has held that the sale effected from bonded warehouse is still sale before crossing Customs Frontiers of India and hence duly entitled to exemption. In this case Madras High Court has relied upon judgment in case of Kiran Spinning Mills v. Collector of Customs (113 ELT 753)(SC). In this judgment the issue before Supreme Court was about payment of Custom duty. Supreme Court held that the duty is payable at prevailing rate when goods are cleared from bonded warehouse. It is observed by Supreme Court that the Custom Frontier ends when the imported goods mingle with common mass and that takes place only upon payment of duty. Based on above ratio, the Hon. Madras High Court has ruled that such sale from bonded warehouse is exempt u/s. 5(2) of CST Act, 1956.

At this juncture reference can also be made to judgment of Bombay High Court in case of Narang Hotels and Resorts Pvt. Ltd. (135 STC 289)(Bom).

In this case the Hon. Bombay High Court, while dealing with case of sale in course of export, observed as under on page 331.

“92. According to Mr. Bharucha, learned counsel for the respondents, so long as the goods do not cross the area of any customs port, and here, the Sahar Airport, the transfer of title to goods will always be regarded as a local sale. According to Mr. Bharucha, merely storage of the goods in the customs area for delivery on delivery van or supply unit will not amount to crossing the limits of customs station. According to him, it is necessary that the goods must go out of the customs station by crossing the area of customs station. According to him, mere bringing of goods into the customs station or on tarmac after customs and quarantine clearance will not amount to crossing the limits of customs area unless those goods have crossed the limits of customs station. Mere parking of the supply unit with goods even after completing the customs formalities will not amount to crossing of the customs frontiers of India.

93. In order to explain concept of crossing of the customs frontiers of India, Mr. Bharucha, relied upon the decision of the Supreme Court in Kiran Spinning Mills v. Collector of Customs (1999) 113 ELT 753. As held by the Supreme Court in the case of Kiran Spinning Mills v. Collector of Customs (1999) 113 ELT 753, which arose under the Additional Duty of Excise (Textiles and Textile Articles) Ordinance, 1978 the taxable event is the crossing of the customs barrier, and not the date when the goods had landed in India, or had entered the territorial waters. When goods are imported into India even after the goods are unloaded from the ship, and even after the goods are assessed to duty subsequent to the filing of a bill of entry, the goods cannot be regarded as having crossed the customs barrier until the duty is paid and the goods are brought out of the limits of the customs station. In the case of Kiran Spinning Mills. v. Collector of Customs (1999) 113 ELT 753 (SC), the Apex Court has observed thus:

‘In other words, the taxable event occurs when the customs barrier is crossed. In the case of goods which are in the warehouse, the customs barriers would be crossed when they are sought to be taken out of the customs and brought to the mass of goods in the country.’

Based on the above judgment Mr. Bharucha contended and, in our opinion, rightly that in case of import the customs frontiers of India are not crossed until the goods find their free access into the country by crossing the outer limits of the area of customs station which is possible only at the time of clearance by the customs authorities. According to him, under section 5(2) read with the section 2(ab) of the CST Act and the relevant definitions in the Customs Act, the expression ‘before goods have crossed the customs frontiers of India’ means before the goods have crossed the limits of customs station, namely, a customs port, or in other words, before the goods have crossed entire area of customs station including its outer boundary so that the goods can find their free access into the country beyond the customs station upon clearance by the customs authorities.”

The above observations also support the reason adopted by Hon. Madras High Court in above case of State Trading Corporation of India Ltd. (129 STC 294).

Similarly in case of State of Tamil Nadu v. Rajan Universal Export (MFRS) Pvt. Ltd. & Another (29 VST 279), Hon’ble Madras High Court reiterated the above legal position and allowed the exemption for sale from bonded warehouse.

Based on Madras High Court judgment the Maharashtra Sales Tax Tribunal in case of Radha Sons International (S.A. 1358 & 1359 of 9-10-2007) has allowed sale from bonded warehouse as exempted sale under section 5(2) of CST Act, 1956.

However, the Government of Maharashtra made reference against above judgment to Hon. Bombay High Court. Now Hon. Bombay High Court has decided the above Reference vide judgment in case of Commissioner of Sales Tax vs. Radhasons International (Sales Tax Reference No. 52 of 2009 dated 8-2-2019).

In this judgment Hon. Bombay High Court has taken different view. Hon. High Court has held that sales from bonded warehouse are not eligible as sale by transfer of documents of title to goods before crossing Customs Frontiers of India. After elaborate judgment, Hon. Bombay High Court has concluded as under in paras 74 & 75:

“74. The High Court of Judicature of Andhra Pradesh at Hyderabad was dealing with a similar case (Minerals and Metals Trading Corporation of India Ltd. vs. The State of Andhra Pradesh) where the argument that the imported goods were transferred by endorsement of bill of lading in favour of the local buyers before the customs clearance of goods was turned down. The MMTC approached the High Court of Andhra Pradesh at Hyderabad and this argument was dealt with by the Division Bench as under:

“14. In order to get over the judgment of the Supreme Court the amendment in Section 2(ab) is made. On the basis of the report submitted by the Law Commission recommending amendment to Section 2 of CST to get over the difficulty to actually ascertain the point of time when a ship crosses the territorial waters of India.

We have already referred to Section 5(2) read with Section 2(ab). The goods will cross the limit of the area of the customs station only on clearance by the customs authorities.

Clearance by the customs authorities will be after filing the bill of entry and after the assessment of duty under Section 38 of the Act. Before the assessment of the duty the goods kept in the customs port cannot cross the limits of the customs port. Therefore irrespective of the fact whether duty is paid or not, when once the bill of entry is filed and the imported duty is assessed, then only the goods can cross the limits of the customs port, therefore, any transfer of documents of title before the clearance of the goods by the customs authorities on making the assessment of goods would amount to a sale in the course of import, as after the assessment is made and on filing of the bill of entry the goods get mingled with the general mass of goods and merchandise of the country. The goods get the eligibility to be declared as local goods after clearance, even though they are not physically removed from the harbour premises. They attain the character of local goods and cease to be foreign goods. Therefore, the relevant point of time for determining as to whether the sale of goods is in the course of import by a transfer of title deeds is the transfer by title deeds before filing the bill of entry and the assessment of duty irrespective of the fact whether the goods are physically cleared from the harbour or not and whether duty is paid or not. As pointed out in the earlier paras after the filing of the bill of entry the assessment of the duty the import stream dries up and ceases to flow after the customs department levies the duty declaring the eligibility of the goods to be cleared and mingles with the general mass of goods and merchandise in the country. Once the duty is levied the import is at an end and the national customs barrier is supposed to have been crossed. The reason being it is difficult to ascertain the point of time or the place at which the goods have entered the limits of the customs port. Therefore, the assessing authorities under the APGST Act does not get jurisdiction to assess the goods if the transfer of title deeds is effected before the clearance of goods by filing the bill of entry under the Customs Act and after making the assessment of the import duty payable under Section 28 of the Customs Act, 1962.”

75. We do not think that our view is in any way different. We have noticed all the sections of the Customs Act, 1962 which are relevant to the issue, including Chapter VI and particularly sections 15 and 18 thereof. Hence, we are of the firm view that it is not necessary to refer to all the judgments relied upon by Mr. Sonpal.”

Thus in Maharashtra the sales from bonded warehouse will not be exempt unless the facts are distinguished or any judgment from higher forum is available.

1. A charitable trust not registered under the Income-tax Act has received donations of ₹ 3,20,000, including corpus donations of ₹ 50,000. It has no other income. It has used the donations partly for the charitable purpose for which it is received, to the extent of ₹ 1,00,000, and has surplus as per its income and expenditure account of ₹ 1,70,000.

Is it required to pay any income tax?

Ans: The tax payable by a charitable or religious trust on income which is not exempt from tax is governed by section 164(2), which provides that tax shall be charged on such income which is not so exempt as if the relevant income were the income of an Association of Persons (AOP). Part I of Schedule I to the Finance Act of each year provides for slab rates of tax for individuals, HUFs, AOPs and BOIs. Therefore, the income of the trust would be exempt up to ₹ 2,50,000, and income between ₹ 2,50,000 and ₹ 5,00,000 would be taxable at 5%.

The income for this purpose would be computed under the head “Income from Other Sources”, and therefore only expenditure incurred for earning such income would be deductible from the gross income, and not expenditure incurred on objects of the trust.

As regards corpus donations, the Delhi High Court in the case of DIT v. Basanti Devi and Chakhan Lal Garg Education Trust – ITA 927/2009 dated 23-9-2009, and the Tribunal in a number of cases, including Sree Sree Ramkrishna Samity v. DCIT 64 taxmann.com 330 (Kol.), Chandraprabhu Jain Swetamber Mandir v. ACIT 82 taxmann.com 245 (Mum.) and ITO(E) v. Serum Institute of India Research Foundation 169 ITD 271 (Pune), has held that even in case of a charitable trust which is not registered under section 12AA, corpus donations would be a capital receipt, and would therefore not be taxable.

The income of the trust would therefore be the amount of donations, other than corpus donations, i.e. ₹ 2,70,000, and the tax payable would be 5% of ₹ 20,000, i.e. ₹ 1,000.

2. A was holding 50,000 equity shares in B Pvt. Ltd., which had cost ₹ 50,00,000 in 2008-09. The book value of the shares as per Rule 11UA as on 31st January 2018 was ₹ 325 per share. B Pvt. Ltd. has merged with a listed company, C Ltd., in December 2018, whereby shareholders of B Pvt. Ltd. have been allotted 1 share of C Ltd. for every 2 shares of B Pvt. Ltd. held by them. A currently holds 25,000 equity shares of C Ltd. The market price of shares of C Ltd. on 31st January 2018 was ₹ 1,200 per share.

A wishes to sell the shares of C Ltd. held by him. Will he be entitled to the benefit of grandfathering of the market value of shares as on 31st January 2018? If so, what would be the fair market value of the shares – the fair market value of shares of B Pvt. Ltd., or the market price of shares of C Ltd.?

Ans. Under section 55(2)(ac), in case of a long term capital asset, which is an equity share referred to in section 112A, acquired before 1st February 2018, the cost of acquisition is the higher of:

(i) The cost of acquisition of such asset; and

(ii) Lower of –

a. The fair market value of such asset; and

b. The full value of consideration received or accruing as a result of the transfer of the capital asset.

The equity share referred to in section 112A is a long term capital asset, on which securities transaction tax (STT) has been paid both on acquisition and transfer of the share (subject to notified exempt acquisitions).

Where the share is listed on a recognised stock exchange on 31st January 2018, “fair market value” is defined to mean the highest price quoted on the stock exchange on that date. This is effectively the concept of “grandfathering”, whereby the gains up to 31st January 2018 in respect of listed shares are effectively not taxed, by substituting the cost on that date for the actual cost. This concept of grandfathering applies only to shares which are listed on 31st January 2018. In this case, the shares of B Pvt. Ltd. were held by A on 31st January 2018, and not the shares of C Ltd. Therefore, substitution of fair market value of shares of C Ltd. as of 31st January 2018 will not be permissible.

Another clause of the definition of “fair market value” in the explanation to section 55(2)(ac) provides that in a case where the capital asset is an equity share in a company which is listed on the date of transfer, and which became the property of the assessee in consideration of a share which was unlisted on 31st January 2018 by way of an exempt transfer under section 47, the “fair market value” shall mean the indexed cost up to the financial year 2017-18.

In this case, listed shares of C Ltd. were acquired through a merger, which is an exempt transfer under section 47(vii). Therefore, the fair market value of the shares on 31st January 2018 would be the indexed cost of shares of B Pvt. Ltd. up to the financial year 2017-18. Since the cost of acquisition was ₹ 50,00,000 in financial year 2008-09, the indexed cost would be ₹ 99,27,007 [50,00,000 x 272/137], which would be the fair market value for the purposes of section 55(2)(ac).

3. A had received shares of an unlisted company under a family settlement. The cost of the shares to the previous member of the family who held the shares, having acquired them in 2006, was ₹ 25 lakh. The fair market value of the shares on the date of the family arrangement was ₹ 40 lakh, and their current market value is ₹ 80 lakh.

A desires to sell the shares. What would be the value that he can adopt as the cost of his shares, and from which year would he be entitled to claim indexation of cost?

Ans. There is no specific provision under the Income-tax Act, 1961 dealing with the cost of acquisition in the case of assets received under a family arrangement. Courts have taken the view that a family arrangement is similar to the partition of a Hindu Undivided Family, and therefore the date of acquisition and cost of an asset received under a family arrangement should be taken in the same manner as in case of assets received under a family partition [CIT v. Shanthi Chandran (2000) 241 ITR 371 (Mad.)], ACIT v. Baldev Raj Charia [2009] 121 TTJ 366 (Delhi)], i.e., the cost of assets and date of acquisition to the previous owner should be taken.

Therefore, in this case, the cost of the shares would be ₹ 25 lakh, being the cost to the previous owner, and the indexation of cost would be available from 2006.

4. A charitable trust had filed an application for accumulation of income of the previous year 2013-14, relevant to Assessment Year 2014-15, under section 11(2) for ₹ 4,75,000, for a period of 5 years. It is unable to spend such accumulation by 31st March 2019.

In which year would such income be taxable – in Assessment Year 2019-20 or Assessment Year 2020-21? If the trust incurs a deficit by spending on purposes other than the purpose of accumulation in the year in which such unspent accumulation is taxable, can the trust set off such deficit against the income arising due to the unspent accumulation?

Ans. Under section 11(3), the unspent accumulation under section 11(2) is deemed to be the income of the previous year immediately following the expiry of the period of accumulation. Therefore, if accumulation for the year ended 31st March 2014 is accumulated for a period of 5 years up to 31st March 2019, the unspent portion is to be taxed in the following previous year, i.e., the sixth year, which is financial year 2019-20, corresponding to Assessment Year 2020-21, unless spent in that following year.

Such amount is deemed to be income, but is not deemed to be income from property held under trust for charitable or religious purposes. Therefore, spending of income for purposes other than the purpose of accumulation would not qualify as an application of income for charitable purposes for the purposes of section 11. Therefore, any deficit in the previous year relevant to assessment year 2020-21 would not be eligible for set off against such income taxable under section 11(3).

The CGST Rules, 2017 have been amended vide Notification No. 3/2019 – CT dated 29th January, 2019 to make certain consequential and necessary changes to the Rules in view of the Amendment Acts being made effective from 1st February, 2019. A brief analysis has been done below for ease of comparison, the possible reasoning and implications of the changes.

Comments – This amendment has been made to bring uniformity in the Composition Scheme by providing the power of complete framing of the Composition Scheme to the CGST Rules, under Section 10 of the CGST Act.

The Composition rates are prescribed under Rule 7 of the CGST Rules, however, even Notification No. 8/2017 – CT prescribed the rates separately. Notification No. 8/2017-CT has now been amended.

• Amendment to Rule 7 – Inclusion of the words “and services” in the Sr. No. 3 of the table

Comments – The CGST (Amendment) Act, 2018 has added a proviso to Section 10 that allows the persons opting for the Composition Scheme to provide services up to a certain value. This amendment to Rule 7 is in wake of the amendment to Section 10 of the CGST Act.

Form GSTR-4 has been amended to include reporting of value of services provided by the Composition taxable person.

• Amendment to Rule 8 – Deletion of first proviso

Comments – By omitting this proviso, the requirement for having separate registration under GST for SEZ Developers and SEZ units in the same State is removed, as a corollary to the amendment that allows to obtain separate registrations for multiple places of business within the same State.

• Substitution of old Rule 11 for separate registration of business verticals with new Rule 11 providing for multiple registrations in same State

Comments – Consequent to the decision of the GST Council in the earlier meetings, the CGST Rules have been amended to allow separate registrations for multiple places of business within the same State without the requirement of having a separate business vertical. There are also certain conditions prescribed for opting for multiple registrations regarding opting of composition scheme and inter-branch transactions in the new Rule 11.

Form GST REG-01 has been amended to include the necessary changes.

• Addition of Rule 21A for temporary suspension of Registration

Comments – This Rule has been inserted after Rule 21 to provide for suspension of GST Registration for the period from date of application for cancellation of registration till the completion of proceedings. This means that the taxpayer shall not have to comply with the requirements of the GST from the date of application for cancellation till completion of cancellation proceedings subject to conditions prescribed in the new Rule.

Form GST REG-17 (Show Cause Notice) & Form GST REG-20 (Dropping of Proceedings) have been amended to include a note for suspension of Registration.

• Addition of Rule 41A for transfer of ITC on obtaining separate Registration within the State

Comments – By virtue of this Rule, the available closing balance of ITC in a particular State may be distributed to the new registrations obtained for the different places of business in the same State on the basis of value of assets held by the places of business at the time of such new Registrations.

New Form ITC – 02A has been prescribed for this purpose in the Amendment Rules.

• Addition of “Entry 92A” in Rules 42 & 43

Comments – Minor amendment to exclude the duties and taxes levied under Entry 92A of List I from the value of exempt supplies as provided in the Explanation to Rules 42 & 43.

• Deletion of clause (a) of Explanation to Rule 43(2) for exempt services

Comments – This amendment has removed the clause (a) of Explanation to Rule 43(2) which excluded the supplies of services made to Nepal & Bhutan against payment in INR from the value of “exempt supplies” for the purpose of Rule 42 & 43. Hence, such services shall now be considered as “exempt supplies”.

• Amendment to Rule 53 for revised tax invoice

Comments – The particulars to be mentioned of credit notes and debit notes have been prescribed under a separate sub-rule 53(1A) and removed from Rule 53(1). The following requirements have also been removed from the particulars to be mentioned on the Revised Invoice –

– “Nature of document

– Value of taxable supply of goods or services, rate of tax and the amount of the tax credited or, as the case may be, debited to the recipient.”

• Addition of sub-Rule 1A to Rule 53

Comments – The particulars to be mentioned on credit notes and debit notes have been separately provided under this new sub-Rule. The requirements are in line with the requirements of other documents prescribed under the Rules.

• Amendment to Rule 80

Comments – The CGST (Amendment) Act 2018 has inserted a proviso to Section 35(5) of the CGST Act to exclude “any department of the Central Government or a State Government or a local authority, whose books of account are subject to audit by the Comptroller and Auditor-General of India or an auditor appointed for auditing the accounts of local authorities” from the GST Audit under Section 35(5). The amendment to Rule 80 is a consequential amendment to exclude the persons provided in the above proviso from Rule 80 which prescribes the conditions for GST Audit.

• Amendments to Rule 83

Comments – The time limit for passing the GSTP examinations has been extended from 18 months to 30 months from the appointed date (1st July, 2017).

Sub-rule 8 has been substituted with new sub-rule 8 to add compliances that can be undertaken by a GST practitioner on behalf of his clients. The new additions include generation of e-Waybill, filing of GST ITC-04 and application or withdrawal of Composition scheme.

Consequential amendment to the proviso to Rule 83(8) has also been made to accommodate the enhanced scope of the GST practitioner.

Form GST PCT-05 (Authorisation of GST Practitioner) has also been amended to include the above enhancement of scope.

• Amendment to Rule 85(3) & 86(2) to add Sections 49A and 49B

Comments – Sections 49A and 49B were introduced by the CGST (Amendment) Act, 2018 to change the method of inter-head utilisation of Input Tax Credit. The amendments to Rule 85(3) and Rule 86(2) have been made consequent to introduction of above Sections.

• Amendment to Rule 89(2) to substitute clause (f)

Comments – Rule 89(2) prescribes the documentary evidences to be submitted for claim of refund of tax or any other amounts. The old clause (f) mentioned that a declaration had to be submitted that the SEZ developer or units had not availed the ITC of the tax paid by the supplier. However, the new clause (f) provides for a declaration stating that the tax has not been collected from such SEZ developer or unit. This could possibly remove the hassle of obtaining the declaration from the SEZ customer.

Form GST RFD-01 (Application for Refund) and GST RFD-01A (Manual Application for Refund) has been amended to include the new clause (f)

• Amendments to Rules 91 & 92 for revalidation of applications

Comments – Procedural amendments to Rule 91 and Rule 92 have been made to provide for revalidation of payment advice of refund in Form GST RFD-05, where the refund is not disbursed within the same financial year as the payment advice. Also, the order sanctioning refund in Form GST RFD-04 and GST RFD-06 shall not be required to be revalidated by the officer sanctioning the refund.

• Amendment to Rule 96A

Comments – The IGST (Amendment) Act, 2018 has amended the definition of “exports of services” to allow for consideration to be received in INR where permitted by the RBI. The amendment to Rule 96A is in consequence to the above amendment in the Act.

The more longing grows the more will the cloud of obstacles be dispelled, and stronger will faith be established.

The last few decades have witnessed a number of legislations introduced to close the gap between the revenue demands raised by various Governments and realisation of such demands by legal means. Audit exercise from time-to-time pointed out the huge gap between the two and legislatures in their turn became in fact more and more alert to the criticism by the opposition vociferously condemning the flaws in the process of realisation of the dues.

Another reason would motivate the Governments to focus on unrealised dues. A state suffering from resource crunch would try all possible means to augment the collection of revenue. In good old days financial crises were not so usual. And therefore focus on unrealised dues was rather little known.

The consideration behind greater amount of attention to revenue realisation is destined to be debated by the economists. Whether financial crises alone prompted the drives for greater collection of unrealised dues? Or they are actually people friendly measures as often claimed by Government department and agencies? We leave this debate to the academics for we know for certain there is no clear end of this debate in sight.

In the present article, I will take up a few important aspects of the Settlement of Dispute Act 2018 that has come into force in the State of West Bengal.

Basic features of the SOD

I would now briefly discuss the basic features of the Act considered by many as a very assessee friendly one compared to several of its earlier incarnations. It encompasses several Acts administered in the State of West Bengal and enlarged the scope of settlement of arrear tax, penalty, late fee or interest arising out of any proceeding including audit, special audit, assessment, appeal, revision, review or for recovery of arrear dues of the following Acts:

1. The West Bengal Value Added Tax Act, 2003

2. The West Bengal Sales Tax Act, 1994

3. The Central Sales Tax Act, 1956

4. The Bengal Finance (Sales Tax) Act, 1941

5. The Bengal Raw Jute Taxation Act, 1941

6. The West Bengal Sales Tax Act, 1954

7. The West Bengal Motor Spirit Sales Tax Act, 1974, and

8. The West Bengal Tax on Entry of Goods into Local Areas Act, 2012

For settlement of dispute, a “case pending” means a case which is pending as on the 31st day of October, 2018 under the aforesaid Acts, for which:

(i) An audit, special audit or assessment has been made; or

(ii) An appeal, revision or review petition has been filed; or

(iii) A revision or review proceeding has been initiated; or

(iv) A notice or order has been issued intimating the applicant for payment of tax, interest, late fee or penalty; or

(v) A notice has been issued in any proceedings under the above Acts proposing payment of tax, interest, late fee or penalty.

It may be mentioned here for the sake of clarity that arrear tax in dispute also includes such Entry Tax which is payable by a dealer/importer even if the applicant is not in possession of any notice/ order/ demand notice.

100% of remaining balance amount of arrear tax in dispute after adjusting Certificates/ Declarations in possession of applicant till the date of application, or the amount already paid towards such arrear, whichever is higher;

2

Arrear entry tax*

100% of arrear tax in dispute or the amount already paid towards such arrear, whichever is higher;

3

Arrear tax otherwise admitted in returns furnished or in writing before any Authority

100% of arrear tax in dispute or the amount already paid towards such arrear, whichever is higher;

4

Any other arrear tax not covered by serial nos. 1, 2 and 3 above

Option for full payment at the time of application

Option for payment by Installment

35% of arrear tax in dispute or the amount already paid towards such arrear, which- ever is higher;

40% of arrear tax in dispute or the amount already paid towards such arrear, which- ever is higher.

(Proof of 15% of arrear tax in dispute and prayer for payment in installment to be furnished with application. Balance amount to be paid in maximum 3 installments from the month following the month when application made)

5

Any arrear interest related to arrear tax in dispute

Nil

6

Any arrear late fee

Nil

7

Any arrear penalty related to late payment or non-payment of any tax or for defaulting in furnishing return for the eligible period

Nil

8

Any arrear penalty not covered by serial no. 7

50% of arrear penalty in dispute or the amount already paid towards such arrear, whichever is higher;

Any application pending before the Hon’ble Supreme Court, Hon’ble High Court or Hon’ble West Bengal Taxation Tribunal can also be settled provided leave is sought from the respective Court or Tribunal and submitted before the Designated Authority on or after the date of submission of Form 1 but not later than 2 months from the date of application or such further time as may be allowed by Designated Authority upon prayer. Further, if a case was pending before the Hon’ble Supreme Court, Hon’ble High Court or Hon’ble West Bengal Taxation Tribunal on 31-10-2018 but final order is passed after 31-10-2018 but before the date of filing application for settlement, the copy of such order is to be furnished in lieu of order of granting leave.

A detailed discussion of the functioning of the Acts mentioned hereinabove and the way they would cope with the new SOD is not within the scope of this brief article. It might appear to be alluring to the assesses that merely a payment of 35% of the assessed dues would make an assessee eligible for the SOD, Further, the dealer won’t be required to pay the amount of interest imposed. As regards penalty imposed there is no silver lining however. If the assessee opts for payments in instalments he will have to pay his dues in three instalments at most. But payment in instalments will require the assessee to pay 45% of the assessed dues instead of the 35% prescribed for the onetime payment option.

Entry Tax assessees have however been dished out something unsavoury. Those opting for SOD are required to pay 100% of the assessed dues. They are not however supposed to pay interest or penalty. However, a dealer/importer is not liable to pay Entry Tax for any of the periods under settlement, if his turnover of import of specified goods does not exceed ₹ 5 lakh in a return period, subject to a maximum turnover of ₹ 20 lakhs in a year.

The assessees interested in the offer and willing to opt for SOD will have to apply in Form I to the appropriate designated Authority. A wide range of cases have been brought under the purview of the Act. Cases pending before the Hon’ble High Court and the Hon’ble West Bengal Taxation Tribunal as well as those before the Review and Revisional and Appellate Authority with relevant proceedings in relation to them being initiated have come under the umbrella of the SOD.

There is little doubt that many assessees will find the terms of SOD acceptable. But many others we know for certain will find no solution to their perennial problems like harsh assessments with little concern for the reality and astronomical demands arising out of such assessments. We know of assessees making no transactions in a given year but assessed to billions of rupees. The SOD will provide no relief for them. Payment of even 35% of such astronomical demand would simply be beyond reach of the hapless assessee and ruinous for his business enterprise.

We have in a nutshell considered the basic features of the SOD. What appears to be logical now is a demand for a little more justice from the relevant authorities; a little more caution and care that would eliminate the occurrences of astronomical demands of assessed dues every year bringing about ruins for hundreds of business enterprises all over India.

The last date for filing application for settlement of dispute in a case pending is 31st March, 2019.

1. Keeping with convention, on 1st February 2019, the standing Finance Minister presented an interim budget with minimal tax proposals allaying rumours that the Government shall present a full budget before the ensuing general elections. Though the main tax proposals have been left for the regular budget, importance of certainty at the beginning of the year for middle class, salary earners, pensioners and senior citizens has led to (and justifiably so) minor yet far reaching changes to income-tax provisions.

2. One particular passage from Finance Minister’s budget speech which gives an insight into the tax proposals presented in the interim budget is:

“5. We are moving towards realising a ‘New India’ by 2022, when we celebrate 75 years of India’s independence: … where everybody would have a house …”

The Housing for All by 2022, launched in June 2015 with an aim to provide affordable housing to urban poor is a flagship project of the Government concerning the problem of urban housing. In its final budget, this Government has made one more attempt in furthering its policies.

3. In all, there are eight clauses in the Finance Bill, 2019 which seek to amend the Income-tax Act, 1961 (the “Act”). Clauses 4, 5 and 6 deal with the tax proposals connected with immovable properties. While Clauses 4 and 5 deal with tax on notional rent and deduction of interest therefrom, Clause 6 deals with exemption from capital gains on sale of house property.

Clause 4 of Finance Bill – Tax on Notional Rent

4. As per the existing provisions, a house owner could treat one house as her self-occupied property on which no income-tax would be levied. Income-tax on notional rent is currently payable if one has more than one self-occupied house. Section 23(4) of the Act which restricts the exemption from levy of tax on notional rent to one house has been proposed to be amended to extend the exemption to two houses.

5. The Government has realised the difficulties of the middle class having to maintain families at two locations on account of their job, children’s education, care of parents etc. and a proposal has been mooted to exempt levy of income-tax on notional rent on a second self-occupied house as well1. The reason stated for this proposal is laudable. But, it gives rise to certain issues. In a country where the problems of poverty and absence of owned houses is acute, the number of persons who really maintain two houses on account of their job, children’s education, care of parents etc., would be less. Considering the overall economic scenario of the country, ownership of more than one house is, even if not a sign of affluence, at least not a sign of belonging to the “middle class” for whom this proposal has been mooted. It is likely to benefit the “Have rather than the Have-not”.

6. Furthermore, the well-intentioned objective of aiding the middle class is not to be found in the language of the amendment. The replacement of “one” with “two” or “one house” with “two houses” in the existing language of Section 23(4) is de hors reference to the objective of the amendment. As a result of this, persons who own more than one house in the same city shall also be eligible for the benefit. The language of the proposed amendment is simple and clear. According to well- established principles of interpretation of taxing statutes, when the language of the section is clear and unambiguous, there is no scope for referring to external aids of interpretation such as the Finance Minister’s speech2. In these circumstances, persons owning more than one house, not on account of the exigencies set out in the Budget Speech or the like, but as a consequence of abundant/surplus resources shall also be eligible to avail the proposed benefit.

7. Upon this proposal being implemented, a typical Indian family comprising two adults and their minor child/ children can, with proper planning, own up to four houses without having to pay tax on notional rent on any of the houses.

8. Section 23(2) of the Act contains the grounds on which the annual value of a house is treated as nil. Amending this provision to specify circumstances in which annual value of a second house could be treated as nil would have been more in line with the legislative intent. Considering the aggressive nature of income-tax authorities in India, it cannot be ruled out that the income-tax authorities would rely on the Budget Speech to read something which the language of the provision does not provide, leading to litigation on this issue. The proposal is likely to most benefit high net-worth individuals/ families and senior corporate executives rather than the middle class for which it has been mooted.

9. Another amendment proposed by Clause 4 is to grant more time to builders and developers for liquidating their inventory before tax on notional rent on the unsold inventory is levied. Houses which are unoccupied after getting completion certificates are subject to tax on notional rental income3. By Finance Act, 2017, builders and developers were granted time of one year from obtaining completion certificates up to which notional income would not be so taxed. By Clause 4, the time of one year is proposed to be increased to two years as a result of which notional rental income from unsold inventory of builders would not be taxed for the period up to two years from the end of the financial year in which the certificate of completion of construction of the property is obtained. This amendment is expected to give impetus to the real estate sector4.

10. Our country faces a housing paradox. Despite acute shortage, more than 10% of total urban housing stock lies vacant5. Though the proposal is sure to bring respite to the real estate sector which has been experiencing sluggishness and slowing demand for some time now, it is important to focus on the problem by public policy interventions rather than only through ad hoc changes to tax laws. Despite recession in the real estate sector, prices have not shown significant corrections to match demand, at least in major cities. This shows that developers are more willing to hold onto prices rather than attempt to increase sales by reducing prices. In these circumstances, giving developers more time to liquidate their inventory will only be counterproductive in alleviation of India’s major urban problem of lack of affordable housing. One instance of public policy intervention was the introduction of the Real Estate (Regulation and Development) Act, 2016 which was one such step in the right direction for regulation and promotion of the real estate sector.

Clause 5 of Finance Bill – Deduction of interest on home loans

11. Clause 5 seeks to amend Section 24 of the Act to provide that the monetary limit of deduction on account of interest payable on borrowed capital shall continue to apply to the aggregate of the amounts of deduction in case of more than one self-occupied houses, which is currently two lakh rupees. Therefore, even though two houses may be treated as self-occupied and annual value of both the houses shall be treated as nil if the budget proposals are implemented, the deduction of interest or aggregate of interest on both houses shall be restricted to the current amount of two lakh rupees. Interest continues to be available as deduction on let out properties without any limit.

12. Therefore, e.g., if an assessee avails two loans for two different houses, both of which are treated as self-occupied under the amended Section 23 and the assessee pays two lakh rupees as interest on each of the two loans, the amount of deduction under Section 24 of the Act shall continue to be two lakh rupees. It is common for taxpayers to view home loans as a legitimate tax saving device as well. However, with no additional benefit on interest payments (as well as on principal repayment with no change in Section 80C limits), it does not make tax sense to avail a home loan on a second house for tax planning purposes unless interest payment of the first loan is not sufficient to exhaust the limit of two lakh rupees.

Clause 6 of Finance Bill – Tax Exemption on Sale of House

13. Clause 6 seeks to amend Section 54 of the Act so as to provide relief to taxpayers having long-term capital gains up to two crore rupees, arising from transfer of a residential house, by affording the assessee an opportunity to utilise the said amount for the purchase or construction of two residential houses.

14. Under the erstwhile provisions of Section 54 of the Act, capital gains arising to an individual/ HUF from transfer of a residential house (being a long-term capital asset) were exempt if the capital gains were invested in “a residential house” within a particular time. The expression “a residential house” was interpreted by Courts6 and Tribunals7 to mean multiple residential units. As a result, the exemption under Section 54 was available on investment in more than one residential house.

15. In the very first budget presented by the incumbent government, by Finance (No. 2) Act, 2014, an amendment was made to the provisions of Section 54 to provide that the benefit of exemption was available to investment made in one residential house. Now, in its last budget, the restriction in the number of houses has sought to be relaxed by proposing to provide exemption in case where capital gain is invested in two residential houses. However, such option is available only if the capital gain does not exceed two crore rupees. Furthermore, such option can be availed by an assessee only once in a lifetime. The capital gains, not utilized till filing of the return of income can be invested in capital gains deposit scheme and thereafter utilised for purchase/ construction of two houses.

16. Two provisos have been inserted below Section 54(1). However, the wording of the proviso is far from satisfactory. There could be a situation wherein, though an assessee purchases two houses but wants to restrict her exemption to one house only as the same is sufficient to cover the capital gain arising on the transaction. The language of the proviso suggests that even in this case, the assessee will be considered to have exercised the option proposed to be given by Finance Bill, 2019 and shall be disentitled to avail the option subsequently. E.g. an assessee earns capital gain of one crore rupees on sale of a house (X) and buys two houses – A and B – of one crore rupees each. Clearly, investment in any of the houses – A or B – is sufficient to exempt her tax liability on sale of X. The language of the proviso reads as follows: “the assessee,may at his option, purchase or construct two residential houses in India,and where such an option has been exercised the provisions shall have effect as if for the words “one residential house in India”, the words “two residential houses in India” had been substituted”. Thus, one can interpret this proviso to mean that the moment an assessee purchases/ constructs two residential houses (irrespective of actually availing the option of considering two houses for exemption), her once in a lifetime opportunity shall get utilized. A little rearrangement of expression “at his option” could have been useful in the present case for conveying the true intent. If the proviso would have read as follows: “the assessee may purchase or constructtwo residential houses in India, and where such an option has been exercised the provisions shall, at his option, have effect as if for the words “one residential house in India”, the words “two residential houses in India” had been substituted”. Had the proviso been worded in the manner suggested, then the assessee in the above example could have opted to not exercise the option and preserve it for future when actually needed. The placement of the words “at his option” in the place as currently envisaged in the proviso is likely to result in tremendous litigation and should be reviewed urgently.

17. Second proviso below Section 54(1) restricts this new exemption to once in a lifetime opportunity. As a result, both individuals and HUF can avail this benefit only once. Though the benefit of existing Section 54(1) i.e. exemption upon investment in one residential house in India shall continue to be available.

18. Though the Budget 2019 proposals pertaining to immovable properties may be well intentioned, two out of the three proposals are likely to increase tax litigation rather than reduce it. Additionally, the proposals are likely to be more beneficial for a class for which the proposals are not intended and may even be counterproductive.

The Government has set out a comprehensive ten-dimensional vision for India by 2030. A vote on account usually has limited changes. In spite of upcoming general elections in the country, the Interim Budget 2019 does not reflect as typical populist budget. However the Interim finance minister has tried to appease the lower and middle class and MSMEs by bringing in a few amendments to the Income-tax act. In this article, we would be analysing the amendments pertaining to Direct Taxes and its impact.

Under the existing provision a standard deduction of ₹ 40,000/- or the amount of salary, whichever is less, was allowed while computing the income chargeable under the head salaries.

Amendment

As per the Finance Bill this limit of ₹ 40,000/- is now been raised to ₹ 50,000/-.

Analysis: The pinch of tax is usually higher on salaried person. Standard deduction for salary earners was brought by the Government in Finance Act, 2018 in place of transport allowance and medical reimbursement. The amount is increased by ₹ 10,000. Though the impact of this amendment to an individual would be minimal, the Government anticipates the aggregate impact of around ₹ 4700 crore to more than ₹ 3 crore salary earners and pensioners.

b) Rental income – Income from property

i) Exemption to self-occupied property – Section 23

Existing provision

Section 23 of the Income-tax Act deems notional rent as income earned in case of vacant properties. This did not apply in certain cases. The annual letting value of a property was considered as Nil, in case it was self-occupied for own use. It was also treated as NIL in case the property could not be self-occupied for a reason that the owner is employed or has business etc. at some other place, where he has to reside at that other place not belonging to him. This benefit however was limited and available only in respect of one such property.

Amendment

The interim Finance Bill seeks to extend the benefit for two house properties as against one property as mentioned above.

ii) Deduction from income from house property – Section 24

Existing provision

In case of self-occupied property wherein notional rent was charged to tax, the Income-tax Act provided for a standard deduction of ₹ 30,000/-. In case the property was acquired from borrowed capital, further deduction of interest up to maximum of ₹ 2,00,000/- was allowed.

Amendment

Now since two self-occupied properties are given exemption, the Finance Bill seeks to cap total deduction, i.e., standard deduction and interest, at ₹ 2,00,000/- for both properties.

Analysis: The positives being that by allowing the benefit for two houses the Government has provide big relief, especially for people who migrate away from their hometown in search of employment/work. Now they can have houses at two places without having to bear the brunt of tax on notional rent which was payable by taxpayers in case where they had more than one self-occupied house.

However there is a downside to the amendment, earlier the total deduction was allowable up to ₹ 2,30,000/- i.e. (₹ 30,000 of standard deduction + ₹ 2,00,000/- of interest income) whereas now the deduction is restricted to ₹ 2,00,000/-. Hence even for one property the deduction stands reduced by ₹ 30,000/-. Further in case where second property was deemed to be let out, deduction of whole interest for the year was allowed without any limit and thus in case of net loss it would have been set off against current year income. If there was no such set off such or the loss would have been allowed to be carried forward for eight years to be adjusted against future income from house property. Thus it can be seen that these amendments are beneficial to people who have self-funded houses or do not have any outstanding loan. However people with outstanding loan will lose out on the benefit to the extent of interest paid in excess of ₹ 1,70,000/-.

iii) Notional income of property held as stock-in-trade

Existing provision

Considering the business exigencies in case of real estate developers, Finance Bill 2017 amended section 23 so as to provide that where the house property consisting of any building and land appurtenant thereto is held as stock-in-trade was not let out, the annual value of such property, for the period up to one year, shall be taken to be nil. Thus it could be seen that exemption was given to properties held as stock in trade for a period up to one year from end of the financial year in which the certificate of completion of construction was obtained.

Amendment

Finance bill 2019 seeks to grant further relief by extending the time limit to two years instead of one year.

Analysis: The real estate sector is awaiting for decision of the Supreme Court in relation to issue of whether deeming provision can be applied in relation to unsold property lying as stock-in-trade and treat notional rent as income from house property. The Government had brought in the amendment in Finance Act 2017, to grant exemption until one year from end of the year in which construction was completed. Further Real Estate (Regulation and Development) Act, 2016 which sought to protect home-buyers also laid burden on the builders and construction contracts to complete the project within particular timeframe. Lot of people had anticipated that the prices of housing will come down, since the builder will have to sell their stock to avoid paying tax on notional rent after the period of one year is over. Increasing the exemption from 1 to 2 years in this budget is a big relief to the real estate sector, which is facing liquidity crunch and an uphill task of recovery. The downside being that in 2017, the anticipation that the prices of housing will come down was not significant and further extension 2 years will give more window to stakeholders to hold the price level.

c) Exemption of long term capital gains from sale of residential house – Section 54

Existing provision

Under the existing provisions long term capital gains arising to an individual or HUF from sale of residential house was exempt to the extent the assessee has invested in one residential house property.

Amendment

As per the proposed amendment, the assessee now has an option to claim the benefit for investment made in two properties, if the capital gain is up to ₹ 2 crore. This option to exercise this benefit is available only once in lifetime.

Analysis: Giving such a benefit provides the much needed impetus to the real estate sector. Considering this is a once in lifetime opportunity, one needs to analyse when to exercise such an option. This amendment would be helpful in cases where families want to sell their current bigger house and diversify their investment in two separate small houses.

Earlier, 100% deduction of profits and gains derived from business of developing and building housing projects was available subject to certain condition in relation to projects approved on or before 31st March 2019.

Amendment

This clause has been amended and benefit is provided for additional year i.e., for housing projects approved till 31st March 2020.

Analysis: In line with the Government vision of affordable housing for all, the extension of benefit to cover projects for an additional year will provide much impetus to the real estate sector.

e) Rebate of income-tax – Section 87A

Existing provision

Under the existing provisions a rebate of income tax of maximum of ₹ 2,500 was available if income, of an individual being resident in India, did not exceed ₹ 3,50,000/-

Amendment

The benefit is now extended to cover all individuals earning income up to ₹ 5,00,000/-. Rebate of income tax on the income earned is granted subject to maximum of ₹ 12,500/-.

Analysis: As stated by the interim Finance Minister, this amendment will provide a tax benefit of ₹ 18,500 crore to an estimated 3 crore middle class taxpayers. This puts more income in the hands of the people, which may lead to increase in consumption. It can be seen that this relief for the aam aadmi / middle class segment is given by way of providing rebate of income tax for people who have income up to ₹ 5,00,000/-. Practically even if a person is earning around 6.5 to 7 lakh, after claiming deduction or reliefs of 1.5- 2 lakh under various sections, net taxable income would be below ₹ 5,00,000/- and hence there will be zero tax liability. However it would be worth mentioning that there is no change in the tax slabs, and hence if an individual earns even a rupee more than ₹ 500,000 as net taxable income, this benefit will not be available.

f) TDS on interest – Section 194A

Existing provision

The threshold limit for deduction of TDS by banks/post office etc., in relation to payment of interest other than income by way of interest on securities was ₹ 10,000/-.

Amendment

The threshold limit is now increased to ₹ 40,000/-.

Analysis: This is a really positive move by the Government to remove the compliance/ administrative hassles for people who have very low income but tax was deducted on Interest wherever it crossed ₹ 10,000/-. Earlier one had to submit Form 15G or 15H as applicable if his/her total income was not going to cross the basic exemption limit. If this was not done, they had to file returns and claim refund, which is a very tedious process. It is a welcome move especially for non- working spouses and senior citizens, who majorly invest their money in post offices schemes/fixed deposits.

g) TDS on rent– Section 194-I

Existing provision

The threshold limit for deduction of tax by certain persons in relation to payment of rent is ₹ 1,80,000/-

Amendment

The threshold limit is now increased to ₹ 2,40,000

Analysis

This will give some relief to persons who are living on rent and pay rent below ₹ 2,40,000/-.

3. Conclusion

Evolving with technology, even the Income tax department is moving towards a digital world. Many steps have been taken over the past years in relation to online assessments etc. Though there is no specific amendment in the Finance Bill the interim Finance Minister has in his budget speech laid down the path for the department giving a two year time frame wherein almost all verification and assessment of returns selected for scrutiny will be done electronically through anonymous back office. This will reduce personal interface between the taxpayer and the tax officer, bringing more transparency into the system. Another positive announcement was that all returns will be processed in twenty four hours and refunds issued simultaneously. The Government is trying to create a taxpayer friendly environment, removing a lot of administrative hassles. Considering this was an interim budget no major tax reforms were proposed, but still it is a good budget having some necessary benefits for the needy ones.

Vide Finance Bill, 2019, an amendment has been made in section 87A of the Income-tax Act to increase the amount of rebate of Income-tax allowable in the case of individual assessees. Before discussing the amendment made in quantum of tax rebate it may be stated that under the Income-tax Act, there are three ways of granting tax relief to an assessee; i.e.

– Exemption in respect of income

– Deduction allowable

– Income-tax rebate allowable.

In regard to certain income, exemption has been provided under the Income-tax Act such as exemptions u/ss. 10 to 13 of the Act in respect of various items of income. Income which has been exempted does not form part of computation of taxable income. Accordingly, same are outside the scope of tax computation. Secondly, various provisions of Income-tax Act provide for allowability of deductions in computation of taxable income. Deductions have either been provided in computation of income under respective heads such as salary, income from house property, business income, capital gain and income from other sources or under Chapter VI-A of Income-tax Act, sections 80A to 80U. Such deductions are allowable in respect of income earned or expenses incurred in determination of taxable income. In other words, income is taken at a gross basis and thereafter deductions provided in respective sections are allowed. The third manner of providing relief to an assessee is by way of income-tax rebate or relief provided in sections 87A, 89, 90 and 91 of the Act.

Reason for providing tax relief in different manner

As stated hereinabove, tax relief can be allowed in respect of an income or expenditure in a different manner either as exemption or deduction or by way of allowing tax rebate or relief. The question arises that why there are three separate ways of granting tax relief. It is stated in this regard that when a particular income is considered to be of nature which the legislature does not intend to tax for various reasons, may be political or economic, it is provided that such income will not be covered under the scope of taxable income under the Income-tax Act. Agriculture income is a leading example, which is not being taxed for political reason. Similarly, many items of income which either have already been taxed, such as, share of partnership firm or which have been exempted, such as, income of charitable institutions, political parties and of undertakings set up in free trade zone, economic zone or export zone etc. The primary reason for keeping such items of income out of scope of taxability under the Income-tax Act appears to be that the legislature does not want to include such income under the provisions of Income-tax Act at all.

In regard to deductions allowed by the legislature, there are items of expenditure for which deductions have been provided in computation of taxable income under the respective heads of income. As per the principle, deduction is allowed for all the expenses which have been incurred for earning the income chargeable under the respective heads. Apart from above, sections 80A to 80U of the Act provide for deductions which are available against the gross total income in respect of certain items of income which are included and forming part of gross total income. These deductions are by way of incentives for economic and social reasons.

Income tax rebates have been provided in the Income-tax Act with a view to allow a rebate or relief from the income tax payable, which is determined with reference to total income calculated as per provisions of Income-tax Act. Income tax reliefs are provided to grant relief in specific cases and not as a general relief to all the assessees.

Deductions vis-à-vis Income-tax rebate

It is observed from the history that legislature has in the past shifted the manner of granting relief for same item, such as investment in saving schemes, some time as deduction some time as income-tax rebate. in respect of those items. Up to A.Y. 1967-68 income-tax rebate was allowed on investments in saving schemes. In A.Ys 1968-69 to 1990-91 deduction was allowed for the same under section 80C of the Income-tax Act. Again during the A.Y. 1991-92 to A.Y. 2005-06 income-tax rebate was allowed and again from A.Y. 2006-07 deduction has been allowed and still deduction is being allowed u/s. 80C of the Income-tax Act. The issue is why the manner of allowing tax advantage was shifted from deduction to income-tax rebate and again from income-tax rebate to deduction and so on. It may be stated in this regard that when deduction is allowed in respect of certain items, say, investments in saving schemes tax advantage of such deduction will be available to all the assessees irrespective the tax slab in which a particular assessee falls. As a result, a person liable to pay tax at higher rate gets more tax advantage as compared to an assessee who is in the lower slab rate for payment of income-tax. In case any tax rebate is allowed at a percentage with reference to amount of investment, amount of tax rebate will remain the same for all the assessees. In fact, this was the reason given in the Finance Bill, 1990. In the Memorandum explaining provisions in the Finance Bill, when provisions of section 80C were omitted and section 88 was reinserted for allowing income-tax relief. Extracts from the Memorandum read as under:-

“Under the existing scheme of section 80C, a person gets tax relief at the highest marginal rate of tax applicable to him. Accordingly, it confers higher amount of tax incentive to a person with a higher income vis-à-vis a person with a lower income. The scheme is, therefore, regressive and iniquitous.”

Therefore, it can be stated that when deduction is allowed in respect of a particular item of income, it is allowable to all the assessees and benefit of same will be available at the rate of tax applicable to particular assessee. System of allowing deduction, in fact, is simpler one and is more logical and is directly related to particular nature of income. Therefore, it is appropriate to allow deduction when the intention of the legislature is to exempt the same or allow an incentive with reference to such income or investment. The manner of providing income-tax rebate is not equitable to all the assessees. Irrespective of the nature of income or the amount of investment, income rebate is allowable at particular percentage to all the assessees and, therefore, though it provides tax advantage to all the assessees but, relatively assessees in lower tax slab, either get full tax waiver or higher tax waiver in relation to their tax liability. Assesses in higher slab rate either get no advantage or lesser tax advantage. The system of providing income-tax rebate, however, has been adopted from time-to-time by the legislature when it is intended to give more relief to assessees in the lower tax slab.

Further, in the case of allowing deduction, quantum of taxable income stands reduced whereas in a case where income-tax rebate is allowed, amount of taxable income continues to be same, though the assessees may not be liable to pay any tax after availing income-tax rebate. For the above reason, the assessees who are not liable to pay income-tax also continue to be assessees under the Income-tax Act and they are liable to file return of income. Accordingly, it places avoidable burden on the assessees of filing returns of income. Similarly, it also burdens the administrative machinery of the Government to process such income-tax returns and make the assessments. Therefore, allowing deductions is a better proposition than the manner of allowing income-tax rebate.

Present provisions and amendment in allowability of income tax rebate

Provisions of section 87A of the Income-tax Act which was earlier omitted w.e.f. 1-4-1968 (A.Y. 1968-69) were re-inserted vide Finance Act, 2013, w.e.f. A.Y. 2014-15 providing for income-tax rebate and thereafter same have been amended from time-to-time and have also been amended vide Finance Bill, 2019 w.e.f. Assessment Year 2020-21. The year-wise position of income tax rebate allowable is as shown in the following table:

Assessment Year

Basic exemption limit (₹ )

Qualifying amount of income for tax rebate up to (₹ )

Amount of tax rebate available up to (₹ )

2014-15

2,00,000

5,00,000

2,000

2015-16

2,50,000

5,00,000

2,000

2016-17

2,50,000

5,00,000

2,000

2017-18

2,50,000

5,00,000

5,000

2018-19

2,50,000

3,50,000

2,500

2019-20

2,50,000

3,50,000

2,500

2020-21

2,50,000

5,00,000

12,500

Analysis of amended provision of income tax rebate

The amendment provides for allowability of income-tax rebate up to ₹ 12,500 against tax payable by an individual assessee having taxable income up to ₹ 5,00,000. At present basic exemption is ₹ 2,50,000 and on the income above ₹ 2,50,000 up to ₹ 5,00,000 tax is payable @ 5%. Accordingly, amount of tax payable on the income of ₹ 5,00,000 is ₹ 12,500. Hence, no tax will be payable by an individual assessee whose taxable income is up to ₹ 5,00,000. As a result of aforesaid increase in the income tax rebate an assessee having salary income up to ₹ 7,50,000 will not be liable to pay any tax after considering standard deduction of ₹ 50,000, investment in saving schemes u/s. 80C of ₹ 1,50,000 and deduction u/s. 80D for medical insurance and expenses of ₹ 50,000. Large number of employees as well as other assessees having taxable income of ₹ 5,00,000 will not be liable to pay any tax now.

There are, however, two major problems in regard to provision of income-tax rebate as has been amended, which are as under:

1. Marginal relief has not been provided in respect of assesses whose income just exceeds the limit of ₹ 5,00,000. For example, in case an assessee has taxable income of ₹ 5,10,000, in his case, the tax payable at the existing slab rates will work out to ₹ 14,500, apart from cess. He, however, will not be entitled to any income-tax rebate since his income is more than ₹ 5,00,000 and, therefore, will be liable to pay income tax of ₹ 14,500 even though his income exceeds the limit of ₹ 5,00,000 by ₹ 10,000/- only. There may be even such cases where income exceeds only by few hundred rupees or, say, ₹ 1,000. In such cases, the provision should have been made for marginal relief. It has always been the practice in the past to provide marginal relief in such cases. Accordingly, it should have been provided that Income-tax payable in such cases will not exceed the amount of total income exceeding ₹ 5,00,000. It appears that this is through an oversight and, therefore, necessary corrective measures should be taken by the Government.

2. In case of assessees having long term capital gain which is chargeable u/s. 112A of Income-tax Act, sub-section (6) of section 112A provides that tax rebate allowable u/s. 87A is not to be allowed with reference to amount of long term capital gain. In other words, the amount of rebate allowable u/s. 87A will be restricted with reference to the income other than the long term capital gain. As per provisions of section 112A of the Act long term capital gain is exempt up to ₹ 1,00,000 and on long term capital gain in excess of ₹ 1,00,000 tax is payable @ 10%. The amount of long term capital gain, including amount of ₹ 1,00,000 on which no tax is payable u/s. 112A will form part of total income of the assessees and, therefore, limit provided of ₹ 5,00,000 in section 87A will be applicable in such cases also notwithstanding that amount of long term capital gain may be exempt or may be taxable @ 10%. In earlier provisions the amount of tax rebate available u/s. 87A was only of ₹ 5,000 which was equivalent to amount of tax payable @ 5% on ₹ 1,00,000, which was the exempted amount of long-term capital gain. Accordingly, there was no loss to assessees having long term capital gain even if the income-tax rebate was not allowable to them. Now as per amended provision, the assesses who is having, say, total income on account of long term capital gain of ₹ 5,00,000, will have to pay income tax of ₹ 15,000/- after considering basic exemption limit of ₹ 2,50,000 and exempted amount of long term capital gains of ₹ 1,00,000. Therefore, it is unreasonable and illogical that an assessees having income from any other source up to ₹ 5,00,000 will not be liable to pay any tax whereas an assessee who is having only income from long term capital gain will be liable to pay more tax. Further, as per the provisions of sub-section (5) of section 112A even deduction available under Chapter VI-A of the Income-tax Act are not available with reference to long term capital gains. If we compare position of two assessees, namely, an employee who is earning salary income of ₹ 7,50,000 and of an assessee earning same amount of income from long term capital gains, the position of tax liability would be as under:

Particulars

Income from salary (₹ )

Income from long term capital gains(₹ )

Income

7,50,000

7,50,000

Less: Standard Deduction

50,000

–

Gross Total Income

7,00,000

7,50,000

Less: Deduction u/s. 80C

1,50,000

–

Less: Deduction u/s. 80D

50,000

–

Total Income

5,00,000

7,50,000

Basic Exemption Limit

2,50,000

2,50,000

Long term capital gain exempt u/s. 112A

–

1,00,000

Income-tax payable

12,500

40,000

Less: Rebate u/s. 87A

12,500

–

Net Tax Payable

Nil

40,000

Education Cess @ 4%

Nil

1,600

Tax Payable

Nil

41,600

Suggestions

It is suggested that necessary amendments should be made in provisions of section 87A of the Act. Preferably the qualifying limit should be increased from ₹ 5,00,000 to ₹ 10,00,000 so that abovementioned anomalies on account of marginal relief as well as in case of assessees having long term capital gains can be resolved.

Taxation is a power of political Governments and realisation of taxes is essential for meeting with the cost of governance. The needs of governance in a “Police State” are limited but in a “Welfare State” are far more and, therefore, the occasion for greater taxation in a “Welfare State” is understandable. After Independence, to meet with the cost of governance, defence, internal security, social welfare; to provide water, food, cloth, housing, electricity and basic necessities of life to the have-nots; to pay debts, interest; to bear with scams, scandals, wasteful expenditure, leakages, pilferages and share of dishonest politicians and bureaucrats, India has been compelled to enact large number of tax legislations. There has been rat race with the Union and the States, to invent new tax legislations. We achieved the status of a highly taxed country.

1.1 In early sixtees a humble citizen was required to pay tax on income – maximum rate being 97.5%; rate of tax on wealth being 2 – 3 %; tax on expenditure, tax on gift, tax on death by way of estate-duty – as direct taxes apart from sales-tax, central sales-tax, excise duty, customs duty, and other indirect taxes and state levies. With passage of time, we realised our mistake and now exists only income-tax a direct tax. In indirect tax regime, there was sales-tax, replaced by VAT, Central Sales-tax, Octroi, entry tax, excise duty, service-tax and other levy, cess and taxes. From 1-7-2017 only Goods and Services Tax (GST).

1.2 Tax laws are complicated, complex, highly technical and beyond understanding of a commoner. Interpretation of tax laws is very much painful and difficult. Lately, there has developed a tendency to amend tax laws frequently and retrospectively. It is not a healthy sign. It is immoral and unethical. It does not very much affect the national exchequer, but puts a greater injury to a citizen of this great democracy. It shakes faith of the taxpayers in tax laws and prompt them to resort to unethical practices.

1.3 Tax, corporate and regulatory laws are strict. Frequent amendments of the Acts and the Rules and plethora of decisions of the Honourable Supreme Court, High Courts and Tribunals apart from instructions, directions and circulars of the competent authorities have been noticed. Conflicting views are expressed by various High Courts and it takes long years to have an authoritative interpretation. Retrospective amendment is made to nullify the effect of the interpretation of the Supreme Court. There appears a tug-of-war between the legislators and the judiciary, crushing honest tax payers.

1.4 Language is not simple and understandable. There are “Explanations”, “Provisos”, “Subject to”, “Notwithstanding anything contained in”, “deeming fictions”, provisions / phrases which lead to litigation. Such provisions are impacting the ease of doing business and cause impediments in free trade. Predictability and certainty is absent. Discretionary power vests with the tax administrators. There are apparent and patent conflicts, overlapping, different interpretations and convergence in tax laws, inviting long drawn litigation at all levels, with waste of time, energy, money and uncertainties.

1.5 For the economic growth and development, taxation policy has been regressive, uncertain, discretionary, breeding corruption, delays, disputes and discrimination. The department is the largest litigant. High pitched assessments are framed with mala fides and bad motives. Appeals if allowed, successive appeals are preferred till finality by the Apex Court; causing waste of time, energy and money – a ‘National Waste’.

2. Changes

“The Indian Income-tax Act, 1922” a simple, short and easy to understand, was replaced by highly complex, complicated and bulky “The Income-tax Act, 1961” with 298 sections, sub-sections, clauses, sub-clauses, provisos, explanations, 14 schedules, rules, regulations, circulars, instructions, etc. That apart, frequent massive amendments, insertions, alterations, deletions by the amending Acts and annual Finance Act, many with retrospective effect from 1962. Chapter XXI has been inserted conferring power to impose 35 type of penalties on non-compliance and technical defaults. Taxpayer has been loaded with a burden to submit statements and informations. However, with passage of time rate of tax has been made moderate to 30% and with deductions, allowances, etc. net rate may reach to 22% only. Now remains only income-tax with interest, surcharge and power to levy penalty, fees, collection and recovery and prosecution. Provisions relating to Tax Deductions at Source have been widened with liability to collect treating as “assessee-in-default” with interest, penalty and disallowance of the expenditure u/s. 40a(ia). Sections 285 and 285A have been inserted and expanded requiring furnishing of information or statement or documents, with an intention to cross-check. Section 44AB for compulsory audit has been made stricter requiring extensive scrutiny, examination, information, verification, certification etc. Efforts have been made to stream line, but compliances and obligations have increased tremendously. Returns, appeals etc. are on-line. Refunds for smaller amount is automatic and with expedition. But records are in a mess and rectifications are not automatic and smooth. One has to rush before battery of officers and human face could not be eliminated.

2.1 “ONE NATION – ONE TAX” – namely “GOODS & SERVICES TAX” has been introduced from 1st July, 2017, along with GST rules. In the GST regime, the Union and the States including Union Territory with legislature will concurrently levy Central GST (CGST) and State GST (SGST), Union Territory (UTGST) on inter-state supply of goods or services while Union will have exclusive power to levy Integrated GST (IGST) on inter-state supply and also on supply in the course of import into the territory of India. GST subsumes all existing taxes and duties on goods and services like Central Excise Duty, additional excise duty, excise duty levied under the Medicinal and Toiletries’ Preparation Act, service tax, additional customs duty, special additional duty of customs, union surcharge and cesses, Central Sales Tax, VAT / Sales-tax / purchase tax, entertainment tax (unless it is levied by the local bodies), luxury tax, taxes on lottery, betting and gambling, state cesses and surcharges in so far as they relate to supply of goods and services and entry tax are the taxes and duties, into a comprehensive GST and applicable uniformly on the supply of goods or services in the course of business with a seamless ‘Input Tax Credit’ (ITC) mechanism across the board. Liquor (alcohol for human consumption), petroleum products and natural gas etc., have been excluded from GST. Certain essential goods have been exempted. Five multi-taxed basic rates @ 0%, 5%, 12%, 18% and 28% have been made applicable. Power to reduce vests with the States.

2.2 Law is simple but compliances are cumbersome and on-line, within specified period. One may have to obtain several registrations with obligation to file returns monthly / annually and payment of taxes, assessments, audit etc. Some returns are to be filed within 10-15 days of next month. Sales invoices have to be in the prescribed format. There would be phenomenal rise in the cost of compliance. Small traders would suffer the pinch. However, if efficiently administered would cut-down prices by 1 to 2%. Anti-profiteering provision would take care of the consumers. In my view it should have been levied and collected by Union, as income-tax and distributed between the various States. That would have been better for the tax administrators and the stake-holders. Its wings are expanding.

2.3 The Modi Government gave golden opportunity to declare under “Income Declaration Scheme, 2016” on payment of 45% by way of tax, interest and penalty and bring 55% in the normal channel with all immunities, even from Benami Transaction Prohibition Act, apart from facility of making payment by instalments, with net tax effect of 41% and odd. Taxpayers had become daredevil and very few sensible persons availed of it. It proved as an utter failure and was an ‘illusion’. The taxpayers were under the bona fide belief that as and when they want to convert black to white, would pay advance-tax, deposit in bank, declare in the regular return and tax liability would be only 30% with no penalty. The taxpayers were under ‘delusion / confusion’.

2.4 The Taxation Laws (Second Amendment) Act, 2016 with effect from 1-4-2017 substituted existing Section 115BBE providing tax on incomes referred to in section 68 or sections 69, 69A, 69B or 69C or 69D of the Act from 30% to 60%, with no setoff of any loss. In view of the declaration that bank notes of denomination of ₹ 500 and ₹ 1,000 ceased to be legal tender with effect from November 9, 2016, it gave an opportunity to pay tax with heavy penalty so that the remaining part of the declared income legitimately comes into the formal economy. The amendments to section 271AAB and the introduction of sub-section (1A) provide to that end that in a case where search has been initiated under section 132 on or after December 15, 2016, the assessee shall pay by way of penalty of 30 per cent of the undisclosed income of the specified previous year, if the assessee in a statement under section 132(4), admits the undisclosed income and specified the manner in which such income has been derived and on or before the specified dates pays the tax, together with interest, if any, and furnishes the return of income for the specified previous year declaring such undisclosed income therein. In other cases the penalty shall be at 60 per cent. Thus in search cases the liability for tax, interest, surcharge and penalty may be 143.25% of undisclosed income (Tax 60% + Surcharge 15% + Cess 2.25% = 77.25% + Penalty u/s. 271AAC – 6% + Penalty u/s. 271AAB(1A) – 60%), which may be ‘confiscatory’, but valid and legal as evasion of tax is a social crime. Evaders have sympathy. It is terrorism. Taxpayers must come to senses.

2.5 In order to achieve the object of ‘less cash transactions, section 40A(3) was amended reducing the amount payable to ₹ 10,000/- instead of ₹ 20,000/- in a single day to a person. A new section 269ST has been inserted by the Finance Act, 2017 with effect from April 1, 2017, i.e. applicable for assessment year 2017-18 and subsequent years, whereby no person shall receive an amount of ₹ 2 lakh or more, in aggregate from a person in a day or in respect of a single transaction or in respect of transactions relating to one event or occasion from a person, otherwise than by an account payee cheque or an account payee bank draft or use of electronic clearing system through a bank account. This restriction shall not apply to Government, any banking company, post office savings bank or co-operative bank, any receipt from sale of agricultural produce by any person being an individual or Hindu Undivided family in whose hands such receipts constitute agricultural income and in respect of transactions of the nature referred to in section 269SS, and such other persons or class of persons or receipts, as may be specified by the Central Government by notification in the Official Gazette. To make this section effective, penalty for failure to comply with the provision has been provided u/s. 271DA, in a sum equal to the amount of such receipt.

2.6 A fourth proviso to sub-section (1) of section 153A was inserted by the Finance Act, 2017 with effect from April 1, 2017, i.e., applicable for Assessment Year 2017-18 and subsequent years, to provide that notice under the section can be issued for an assessment year or years beyond the sixth assessment year already provided up to the tenth assessment year if (i) the Assessing Officer has in his possession books of account or other documents or evidence which reveal that the income which has escaped assessment amounts to or is likely to amount to ₹ 50 lakh or more in one year or in aggregate in the relevant four assessment years (falling beyond the sixth year); (ii) such income escaping assessment is represented in the form of asset; (iii) the income escaping assessment or part thereof relates to such year or years. The amended provisions of section 153A shall, however, apply where search under section 132 is initiated or requisition under section 132A is made on or after April 1, 2017.

2.7 To stop circulation of black / corrupt money, to eliminate fake currency and to check its use in terrorism activities, strong man – Shri Narendra Modi – declared demonetisation at 8.00 P.M. on 8th November, 2016, declaring existing 500 and 1000 rupee currency notes as illegal tender from 9th November except for specified purposes. The old currency to be converted into new currency by banking channels up to December 30, 2016. The Specified Bank Notes Cessation of Liabilities Ordinance, 2016 was promulgated on December 30, 2016. Many traders accepted old currency from 8th night and onwards showing invoices for sale in earlier dates and deposited in the Banks with convenience of bank officials. Notices have been issued and the assessees have been required to disclose cash amount deposited from 9th November and onwards. The income-tax officials are well-equipped to make scrutiny, examination, verification and if unsatisfied would deem as income u/ss. 68, 69 etc. with liabilities as above stated. It has caused ‘threats’ and ‘turmoil’.

2.8 It is strange and amazing that on the sacred and pious land of Lords Rama, Krishna, Mahavir, Buddha and Mahatma Gandhi, menace of corruption spread as a cancerous chronic disease, in all fields of life. Larger section of the politicians, persons-in-power, civil servants, and services indulge deeply in corruption, with no fear of the Government or even God. Tons of money has been acquired illegally and is held not in own name but in the name of spouse, children, relatives, friends, trusted persons or ghosts and non-existent persons. Many exposures have been made. Prevention of Corruption Act failed to book and prosecute successfully. Modi Government amended “Prohibition of Benami Property Transactions Act, 1988” w.e.f. 1-11-2016. It is very wide and meaning of benami transactions have been expanded. It may be stated that the term “property” for the purpose of benami transaction has been defined very widely and it includes assets of any kind whether movable or immovable, tangible or intangible, corporeal or incorporeal and includes any right or interest of legal documents or instruments evidencing title to or interest in the property. It also provides, in case property has been converted in any other form then the property in converted form or sale proceeds of the same will also be deemed to be benami property. It shall cover all “benami transactions” which are not bona fide transactions. Income-tax Department has been entrusted with the job of initiation and adjudication. Right to confiscate vests in the Central Government apart from prosecution. Special Courts shall try and conclude trial within 6 months. Laloo Yadav’s family and his daughter Misa have been proceeded. Necessity would be its efficient and expeditious implementation. Many searches have been conducted by the Enforcement Directorate and prosecutions launched. It is a ‘tragedy’.

2.9 In 1961 Act, Section 271(1)(c) was inserted with an objective to impose penalty on concealment of income or on furnishing of inaccurate particulars of income at 100% of the tax evaded up to 300% of such tax. With passage of time swven Explanations were added to make the provisions more rigorous and effective, after shifting onus to prove bona fides on the tax payer. Penalty was sustained in few cases only. Exercise use to be in futility with harassment to the tax payers, with heavy cost for both and not sizable revenue for the exchequer. Hence by the Finance Act, 2016, the provisions have been made inoperative from 1-4-2017. New concept of penalty in cases of “under-reporting” and “misreporting” of income have been introduced from 1-4-2017 with insertion of Section 270A. On “under-reported income” and “misreported income” penalty would be 50% and 200% of such income respectively. Many illustrations and exceptions have been inserted. Immunity from penalty and prosecution in case of “unreporting” would be available u/s. 270AA on fulfilment of specified conditions. It is advisable for the Authorised Representatives / Return preparers / Chartered Accountants / Tax Advocates to be vigilant, cautious, careful and not casual, while auditing, examination of accounts, supporting vouchers, bank statements, other transactions, etc., and to report carefully and make all possible additions, disallowances while computing true and correct income. Requisite information, disclosure of primary and relevant facts for computing income without concealment or misrepresentation be furnished along with the return or by a separate letter immediately after filing of the return, to avoid penal provisions u/s. 270A of the Act. If for any reason non-reporting is noticed, make application to AO, pay the due tax, do not prefer appeal and seek immunity from penalty and prosecution. Purchase peace.

2.10 Taking undue advantage of Section 10(38) a fairly large number of unscrupulous assessees indulged in shady deals through shell companies, understated purchase price, over-stated sale consideration (unreal) and sought and got exemption from long term capital gain. More than two lakh such companies were detected, resulting in assessment / reassessment with tax, penalty, interest and some prosecutions. To curb this menace and to put a stop to such abusive act, to check revenue loss, to discourage diversion of investment in financial assets, the Finance Act, 2018 withdrew the exemption on transfers on and after the 1st day of April, 2018. A new section 112A in the Act has been inserted from 1-4-2018 to provide that long term capital gains arising from transfer of a long term capital asset being an equity share in a company or a unit of an equity oriented fund or a unit of a business trust, shall be taxed at 10 per cent of such capital gains exceeding one lakh rupees. It will be applicable to such long term capital gains, if (i) in a case where long term capital asset is in the nature of an equity share in a company, securities transaction tax has been paid on both acquisition and transfer of such capital asset; and (ii) in a case where long term capital asset is in the nature of a unit of an equity oriented fund or a unit of a business trust, securities transaction tax has been paid on transfer of such capital asset.

2.11 To regulate housing sector Real Estate Regulation Act has been enacted to curb misuse of funds received on booking of apartments, strict audit by Chartered Accountants, for registration, maintenance of accounts, bank accounts, and heavy interest on delay or default. Prevention of Money Laundering Act was activated and enforced with full vigour and many persons have been roped in, resulting in confiscation of ill-earned tax evaded money and assets.

3. Challenges

The last two years have been years of fear, illusion, delusion, confusion, threats, turmoil, tragedy and terrorism, to weed out black money and corruption, which are anti-social acts. It is advisable for the Authorised Representatives / Return preparers / Chartered Accountants / Tax Advocates / Corporate Advisors to be vigilant cautious, careful and not casual, while auditing, examination of accounts, supporting vouchers, bank statements, other transactions, etc., and to report carefully and make all possible additions, disallowances while computing true and correct income. Requisite information, disclosure of primary and relevant facts for computing income without concealment or misrepresentation be furnished along with the return or by a separate letter immediately after filing of the return, to avoid penal provisions. If for any reason “non-reporting” is noticed, to purchase peace, pay the due tax and seek immunity from penalty and prosecution. Compliance requirements under GST, Income-tax, Companies Act, SEBI, etc., are fairly large to be complied in very short time and all over the year. Professionals would have to be more attentive, alert and active.

3.1 The assessment is civil liability. Penalty is quasi-criminal in nature and prosecution is criminal. Provisions of search, seizure, rate of tax on undisclosed income, prosecutions etc., have been made more strict and stricter from year-to-year. It has become an annual phenomena. It is advisable to follow the law, comply the procedure and discharge liability in accordance with law. Forget to find out leakages, loop holes and evade due and correct taxes. Create tax culture. Be law abider and not breaker. Tax advisors must function as torch-bearers and encourage, inspire, instigate and advise tax payers to be on the right side. One should be peaceful not hounded by tax collectors. Take caution from provision contained in Section 271J for imposition of penalty and prosecution u/s. 278 for abatement.

4. Compliances

It is solemn duty of taxpayers as also tax administrators to understand intricacies of law, to comply with its provisions and procedure and to act in accordance with law. It is two way traffic. Taxpayer alone is not to be singled out or inflicted with penalty on non-compliance. Tax administration is expected to be respectful and sympathetic towards taxpayers. They should be also transparent and accountable and should not abuse or misuse the powers conferred under the Act. To maintain discipline, decorum and to avoid chaos and arbitrariness ‘Judicial Discipline’ has been built-up by the judicial precedents, judge made law. The basic object is to bring in consistency; to avoid unwanted litigation, which is costly and full of uncertainties; to avoid harassment of taxpayers; to eliminate denial of justice and to put a closure to the controversy.

4.1 In Bhopal Industries Ltd. v. I.T.O. (1960) 40-ITR-618 (S.C.), the Supreme Court observed : If a subordinate Tribunal refuses to carry out directions given to it by a superior tribunal in the exercise of its appellate powers, the result will be chaos to the administration of justice. Such refusal is in effect a denial of justice, and is further more destructive of one of the basic principles in the administration of justice based as it is in this country on a hierarchy of courts. The Supreme Court in Union of India v. Kamlakshi Finance Corporation Ltd. – AIR 1992 S.C. 711 at 712 emphasised: It cannot be too vehemently emphasised that it is of utmost importance that in disposing of the quasi-judicial issues before them revenue officers are bound by the decisions of the appellate authorities. The order of the Appellate Collector is binding on the Assistant Collectors working within his jurisdiction and the order of the Tribunal is binding upon the Assistant Collectors and the Appellate Collectors who function under the jurisdiction of the Tribunal. The principles of judicial discipline require that the orders of the higher appellate authorities should be followed unreservedly by the subordinate authorities. If this healthy rule is not followed, the result will only be undue harassment to assessees and chaos in administration of tax Laws”. In Assistant Collector of Central Excise v. Dunlop India Ltd. (1985) 154-ITR-172 at 173 (SC). “In the hierarchical system of Courts which exists in our country, it is necessary for each lower tier, including the High Court, to accept loyally the decisions of the higher tiers. It is inevitable in a hierarchical system of Courts that there are decisions of the supreme appellate tribunal which do not attract the unanimous approval of all members of the judiciary. But the judicial system works only if someone is allowed to have the last word and that last word, once spoken, is loyally accepted. The better wisdom of the Court below must yield to the higher wisdom of the Court above.”

4.2 “Judicial Discipline” deserves to be followed religiously and its sanctity must be understood. It is painful that despite a plethora of decisions commencing with Bhopal Industries, the AO and CIT(A) and few of the members of the Tribunal are flouting judicial discipline and committing contempt. It is high time that appellate authorities correct the errant authorities with heavy hand. It is being noticed that the Supreme Court and High Courts are taking indiscipline seriously. Recently on 24-4-2018 the Hon’ble Supreme Court in UOI v. Prithvi Singh dismissed the appeal with cost of ₹ 1 lakh. However there remains non-compliance by tax administration.

4.3 The Central Board of Direct Taxes must keep a watch and vigil and take serious disciplinary action against the wrong doers. Malady must go. Law is Supreme – Not the Tax Authorities. Taxpayer and tax authority are on equal footing. Compliance should be on both sides. Non-compliant officers should also be dealt seriously and severely. There should be no discrimination. Alas, politeness and normal courtesy upkeep of standards, talent and judicial acumen are becoming things of the past. Unhealthy ego is increasing. One is prone to misuse. One has to be honest to oneself to the greatest possible degree and maintain absolute total integrity, morality and ethics. The phenomena has intensified by continual interference of multiple higher authorities and fixation of target. Taxpayers are fastened with “Responsibility”, “Obligation” and “Duties” – not “Rights”, which has become a dream. It is apparent that artificial assessments are framed to create huge unrecoverable paper demand with coercive recovery. Challenges & lack of compliances are on the part of taxpayers as well as tax administrators. Tax-payers / Tax Consultants and Tax administrators are two sides of the same coin, if any part is deficient / non-compliant, economy would suffer.

4.4 Such being tax litigation scenario on large number of representations and directions of Commission, section 254(2B) was inserted by Finance Act, 1999 w.e.f. 1-6-1999, which provides : ‘The cost of any appeal to the Appellate Tribunal shall be at the discretion of that Tribunal”. Statistics show that over 19 years, in negligible few cases cost commensurate with the expenditure, damages, compensation has been awarded by the Tribunal. Even if specific ground is raised and forcefully argued, discretion is not judiciously and judicially exercised. Even High Courts are slow in awarding cost / exemplary costs. However, it is heartening to note that some benches of the Tribunal, High Courts and Supreme Court finding uncurable malady have started awarding token cost.

4.5 Very recently a Division Bench of Rajasthan High Court in GVK Jaipur – Kishangarh Express way Ltd. v. Addl. C.I.T. in D.B.I.T.A. No. 622/2009 on 16-11-2017 observed.” The Officer not only acted arbitrarily but has exceeded is jurisdiction and which has put an agony on assessee’s account where daily turnover or toll is required to be operated through bank therefore, the agony which has been made on 6th February, 2009 and narrated in issue no 5 of the written submission which we have reproduced with a view to show agony which has been suffered and the conduct of the officer in spite of the High Court interference he has acted arbitrarily. In that view of the matter, the issue nos. 7 & 8 are required to be viewed very seriously and the Tribunal ought to have granted cost under 254(2)(b).The Hon’ble Court imposed cost. It is high time to realise “Professional Social Responsibility”. Be an active partner in building the nation. Serve the Taxpayers faithfully and carry them to the right path. Be prepared for it.

[Source: Article printed in Souvenir of 21st National Convention 2018 held from 22nd to 23rd December, 2018 at Guwahati]

The new team has completed nearly one and a half months from the date of assuming office to serve the fraternity and in the span of this one and a half months, various zones have organised many events with dedication, zeal and enthusiasm.

We started the year with a bash. An International Mini Study tour was organised to Bangkok-Pattaya from 30th January to 2nd February, 2019. The tour was a grand success with around 55 delegates from different cities. The delegates who participated in the tour had a great time together, with some important discussions in the meeting and greatly benefitted by the technical session held at Pattaya.

A two day National Tax Conference was organised by the West Zone of the Federation in the city of Aurangabad, which is famous for the Grishneshwar Jyotirlinga Temple, the 12th Jotirling as per Hinduism believes, seventeen century marble Bibi ka Maqbara Shrine, styled on the Taj Mahal, nearby Shivaji Maharaj Museum and the Aurangabad Caves comprising ancient, rock-cut Buddhist shrines. The conference, which consisted of five technical sessions, was undoubtedly successful in spreading education amongst the members, keeping them updated about the important recent issues of Direct Tax and GST.

Further, many one day seminars were organised by various zones of the Federation where, I am told, that a large number of delegates participated. It is a bright sign for the Federation that the participations in such events are growing significantly day-by-day.

The North Zone of the Federation has organised a Prayagraj Kumbh Darshan Programme from 2nd to 4th March, 2019 wherein arrangements have been made for stay for as many as 100 delegates which includes Kumbh Darshan and talks and discussions on professional spiritual issues. I am sure that the same would be a historical event for the members of the Federation and I appeal to the members to take part in the same.

The next two day National Tax Conference is going to be held at Ranchi on 6th and 7th April, 2019. I can gladly inform you all that a large number of delegates have already registered themselves for the conference and I am sure that in the coming days, the number of delegates would break all records. The organizing committee as well as Shri Anand Pasari, present Secretary General is working very hard to make the conference a magnificent and successful one.

Brothers and Sisters, from the very first day of taking over as the National President of the Federation, I have been stating in various events, that professional ethics and discipline are the most important virtues required for a successful working of the Federation. Professional ethics and discipline encompass the personal and corporate standards of behaviour expected by professionals like us. I request all the members of the Federation to follow professional ethics and not to do any such thing which may tear the thread of brotherhood and fellowship amongst the members.

Lastly and most importantly, very recently, our country has faced a horrific and dastardly terror attack on Indian security forces in Jammu and Kashmir’s Pulwama region wherein a large number of 44 CRPF soldiers of our country lost their lives. We are deeply shocked by such cowardly attack of the terrorists. We express deep condolences and sympathy to the injured and bereaved families. My thoughts are with the victims and I pray Almighty for the peace of the noble souls of the martyrs who made supreme sacrifice for the cause of our motherland. We strongly condemn all forms of terrorism. Terrorism is a cancer in the region and it requires collective efforts to root it out.

I thank you all for your kind support and co-operation and looking forward for similar support in future to work for the cause of the Federation.